Thursday, November 24, 2016

The Best Way to Invest For Your Retirement

From my perspective, there are three types of people in this world. First, there are those that invest very simply and carefully, typically choosing investments that have steady long-term growth and have very low fees. Second, there are those that are studying the market each and every day. They often buy and sell shares of stock in order to avoid risk in the short term, which will in turn allow them to grow wealth for the long term. Finally, there are those that have always thought of investing, but have just never pulled the trigger. Either they do not have the funds to invest (by nature or by poor spending choices), or they just assume that they have plenty of time to invest later when they reach their 40’s and 50’s.

So what mentality is best? How should you be investing your money? I’m glad you asked. Let’s dig in.

The Obvious Wrong Choice

If you invest absolutely no money into the market, then your obvious return will also be nothing. Chances are, if you are going to wait until you are 40 or 50 years old to invest, then you have simply missed the boat. Sure, you could amass a couple hundred thousand dollars (which still will likely not allow you to retire) by dumping large amounts of money into the market, but if you would have started small when you were in your 20’s, the same amount invested could have grown to a value of over a million dollars. Postponing your investment is the obvious wrong choice.

Trading Frequently in the Market

I have a friend that often brags about a certain stock of his that has soared in the recent weeks. In total, he claims to have beaten the market considerably last year (which I later found out to mean a 22% gain), but he either did not check the yearly earnings of the major indexes, or he had such an arrogance about him that he was just blind to his lack of earnings. My investments sat in a few different index funds and earned 29% over that same period of time (and required none of my attention).

His story is quite similar to the majority of active traders. By jumping in and out of the market not only are they increasing their risk by trading in the short term, but they are increasing their expenses due to reoccurring transaction fees. 99% of these traders perform at a rate below the average market growth.

Get Rich Slowly
The absolute best way to invest for your retirement is to get rich slowly. Invest early, avoid senseless fees, and stay consistent. Over time, your money will grow at a greater and greater rate (thanks to compounded earnings). In addition to this, be sure to take advantage of company matches and bonus programs that will contribute additional funds to your 401(k). By continually adding to your pot of retirement funds and letting those

earnings grow year after year, your small contribution of $150 a month for 45 years will likely turn into $1.4 million dollars! Invest early and carefully and it will pay enormously.